Cash talk
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Improving physical and financial fitness — that’s at the heart of most New Year’s resolutions. We say we want to lose weight, reduce debt, work out regularly, make and adhere to a budget. Sound familiar? How many of us start these resolutions only to watch them fizzle by February? Harvard Health News, in an article about common resolution mistakes, offers some tips for success. Here are a few: • Don’t set too many goals. • Try to temper your desire to be perfect. • Make sure the resolutions are your resolutions, not resolutions you believe you should be making. • Come up with a good strategy for achieving your goal that is rooted in practical steps. If your goals are related to financial fitness, what’s a good first step? Before you get started, you need to do some analysis. You need to assess your current fitness level so that you can set realistic goals for how to work toward greater fitness. This will give you a pretty good indication of the shape you are in. It’s a bit like stepping on a scale and saying, “I
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don’t want to look!” Of course, this step is not meant to frighten or embarrass you; it is a necessary starting point in the process that leads to better financial health. Only by ongoing commitment to reality can we get healthier. Completing a net worth worksheet will give you a “before” picture. To begin, think of your assets as the benchmarks you have already achieved such as, “I contribute the maximum to my 401(k) or I spend less than I make.” Assets typically fall into the categories of liquid and non-liquid. • Liquid assets are those you can convert into cash quickly with little or no impact on their value. Examples are: savings/checking/money market accounts/certificates of deposit, stocks, bonds, mutual funds, cash value of life insurance policies. • Non-liquid assets include your home or other real estate, jewelry, cars or furniture. These items are more difficult to turn into cash. It is important to differentiate between appreciating and depreciating assets. A car is a depreciating asset; a home is typically (but perhaps not recently) an appreciating asset. This is significant because the average home appreciates about 5 percent per year while the average car can depreciate by as much as 50 percent the minute you drive it off the lot.
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